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Phil Mickelson to forfeit nearly $1M after being named in insider trading suit

The professional golfer agreed to forfeit the money to the SEC after it alleged he earned it in an illegal insider trading scheme.

Phil Mickelson's management group issued a statement Thursday saying that he had reached an agreement with the SEC to return all of his profit. (Michael Madrid / REUTERS file photo)

By Marcy Gordon And Tom HaysThe Associated Press

Thu., May 19, 2016

NEW YORK—Phil Mickelson paid off a debt to a professional gambler with nearly $1 million (U.S.) that was unfairly reaped from an insider-trading scheme, according to a federal investigation that led to two arrests but spared the golf great from criminal charges.

Mickelson, named as a "relief defendant" in a civil suit in the case accused only of profiting from the misdeeds of others, agreed to repay the $931,000 he made from a single trade in 2012.

"Simply put, Mickelson made money that wasn't his to make," Andrew Ceresney, head of the Securities and Exchange Commission's Enforcement Division, said at a Manhattan news conference.

The Securities and Exchange Commission and U.S. Attorney Preet Bharara announced an indictment Thursday against the gambler, William Walters, and a former corporate board member of Dean Foods Co., Thomas Davis, alleging that the pair used non-public information about the company to make tens of millions of dollars in illicit stock trades between 2008 and 2012.

In 2012, the SEC says, Walters called Mickelson, who owed him money, and urged him to trade stock of the Dallas-based distributor of Land O Lakes butter and other dairy products. The SEC says Mickelson made the trade the next day and reaped a profit of $931,000 that he used to help pay off the debt.

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Ceresney declined to spell out the rationale for not making Mickelson part of the criminal case, other than, "We bring charges based on the evidence and the law."

The case comes in the wake of a 2014 appeals court decision that made prosecuting people benefiting from inside tips more difficult. The ruling found that in order to be charged, there must be evidence a defendant had first-hand knowledge about the origins of the inside information.

"Basically everybody has to know everybody else's role in the scheme," said Anthony Sabino, an attorney specializing in white-collar legal issues and a business professor at St. John's University in New York.

That may have been too high a hurdle for the prosecutors to surmount with Mickelson. He was allegedly tipped by Walters, but didn't necessarily know Walters' source of the information.

Mickelson's management group issued a statement Thursday saying that he felt "vindicated" because prosecutors hadn't charged him with breaking securities laws. It added: "He takes full responsibility for the decisions and associations that led him to becoming part of this investigation."

Davis, 67, who resigned from Dean Foods' board of directors last year, has already pleaded guilty in the case and is co-operating with the investigation, Bharara said at the news conference. Walters, 69, was arrested by the FBI in Las Vegas on Wednesday. He was scheduled for arraignment Thursday afternoon in U.S. District Court in Las Vegas.

In a statement, defence attorney Barry Burke called Walters — a multimillionaire who owns several golf courses and auto dealerships — "an American success story." The accusations, he added, "are based on erroneous assumptions, speculative theories and false finger-pointing."

Davis' attorney, Christopher Clark, confirmed his client was co-operating, but declined further comment.

From 2008 through 2012, the SEC said, Davis passed Walters highly confidential information on Dean Foods, including sneak previews of at least six of the company's quarterly earnings announcements and advance notice of the spinoff of its profitable subsidiary, WhiteWave Foods Co.

In 2013, Davis also gave Walters inside information he'd gotten from a group of investors who confidentially shared their plans to buy stock in Darden Restaurants Inc., the SEC said. Based on the tips, Walters reaped illegal trading profits and avoided losses of at least $40 million, according to the regulators.

Prosecutors allege Walters gave Davis a prepaid cellular phone to use when passing tips, with instructions to use code words, like "Dallas Cowboys" to refer to Dean Foods, prosecutors said.

The complaint alleges that Mickelson had placed bets with Walters before the stock tip, and that the golfer owed Walters money at the time of the trading. It says that two months later, Mickelson repaid Walters "in part with the proceeds of his trading."

It did not say how much Mickelson owed.

The complaint has the attention of the PGA Tour, which has a section in its player handbook related to gambling. One part of the regulation says that player shall not "associate with or have dealings with persons whose activities, including gambling, might reflect adversely upon the integrity of the game of golf."

"That's something we're in the process of looking at and determining," tour spokesman Ty Votaw said Wednesday evening.

The PGA Tour, unlike other sports, does not disclose any disciplinary matter. Asked if Mickelson could be in violation, Votaw said only that "you quoted the regulation accurately." It had no further comment.

In May 2014, Mickelson confirmed that FBI agents investigating insider trading questioned him as he finished playing a round at the Memorial Tournament in Dublin, Ohio, and said he was co-operating with the investigation.

Mickelson, 45, was inducted into the World Golf Hall of Fame in 2011. He has won 42 tour events, including five majors — three Masters, one PGA Championship and one British Open. Forbes put his earnings last year at $51 million.

He has long had a reputation for being a gambler, though he has said he scaled back his habit after his son, Evan, was born in 2003. The most publicized payoff was when Mickelson and friends won $560,000 on a preseason bet (28-1 odds) that the Baltimore Ravens would win the 2001 Super Bowl.

He also has a history of playing money games during the practice rounds. He occasionally gets a group of players and caddies together for dinner and small wagering during the NBA and NHL playoffs, and prominent fights.

In their statement, Mickelson's management representatives said he wasn't losing any endorsement deals over the inside trading episode.

"Phil understands and deeply respects the high professional and ethical standards that the companies he represents expect of their employees, associates and of Phil himself," they said. "He subscribes to the same values and regrets any appearance that, on this occasion, he fell short. "

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